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Replace your term deposit with these ASX dividend shares

Imagine having a term deposit with $1 million in it. At the start of the decade you wouldn’t need to search too hard to find term deposits offering around $50,000 of income for your $1 million.

These days you’ll be lucky to find anything paying close to $20,000 (2%) for your term deposit from banks like Commonwealth Bank of Australia (ASX: CBA) or Westpac Banking Corp (ASX: WBC).

I believe that ASX dividend shares are the only answer. Low interest rates have pushed up the value of property and push down the prospective dividend yields.

Here are three dividend shares that could be effective long-term dividend shares:

WAM Research Limited (ASX: WAX) – high yield

WAM Research has a grossed-up dividend yield of 9.5%.

It’s a listed investment company (LIC) which looks to find undervalued growth businesses which seem as though they can produce strong returns for investors.

WAM Research’s portfolio has produced average returns per annum of 14.7% per annum over the past five years before fees, expenses and taxes. It has used this good performance to pay an impressive dividend to shareholders.

It has increased its dividend each year since the GFC whilst maintaining a decent profit reserve.

Future Generation Investment Company Ltd (ASX: FGX) – medium yield

Future Generation has a grossed-up dividend yield of 5.9%.

This is also a LIC but it’s very different to a typical LIC. There are no performance fees or management fees, instead it donates 1% of its net assets each year to charities focused on helping the youth.

It invests in fund managers who invest in ASX shares. Since inception in September 2014, Future Generation’s portfolio of funds has returned an average of 9.5% per annum (before donations), outperforming the S&P/ASX All Ordinaries Accumulation Index by 1.3% per annum.

Future Generation aims to steadily increase its dividend for shareholders, which it has done since it started paying a dividend.  

Brickworks Limited (ASX: BKW) – lower yield

Brickworks has a grossed-up dividend yield of 4.3%.

There’s a number of things to like about Brickworks right now. It’s a good idea to buy businesses when they’re at the bottom of the cycle. The construction industry is at the bottom and Brickworks is seeing a steady increase for its order book.

The US building products division, which Brickworks has acquired over the past year, has an attractive future in the north east region on the US. Brickworks sees plenty of opportunity to improve efficiencies and profit margins within this segment.

Brickworks has a high-quality industrial property partnership with Goodman Group (ASX: GMG) where the tenants are on long-term contracts and small rental increases are built into the agreements.

Brickworks has a large equity investment which, when combined with the value of its 50% stake of the property trust, fully backs the Brickworks valuation.

Brickworks hasn’t decreased its dividend for around four decades.

Foolish takeaway

Each of these businesses have excellent dividend credentials with long-term growth potential. At the current prices I’d go for Brickworks because you essentially get the building products businesses for free – that seems like a bargain to me.

For more dividend ideas I’d want to think about these leading income picks.

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Motley Fool contributor Tristan Harrison owns shares of FUTURE GEN FPO. The Motley Fool Australia has recommended Brickworks. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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